Three rules of water markets: Local, local, local

Our team wrote a letter to the editor in response to Scott Moore’s Op-Ed, “Water Pricing, Not Engineering, Will Ease Looming Water Shortages.” While it didn’t get published in the NYT, we still very much believe in the message.

We commend Scott Moore for his op-ed encouraging economic approaches to water allocation. Markets and market-like transactions for environmental goods and services are powerful management options. Indeed, some of the most innovative surface water and groundwater markets worldwide serve agricultural water users, including in places like California, Nebraska, Texas, and Australia.

However, in developing water markets, one must consider complex physical realities. Whether through natural or engineered channels, water flows only so far. Creating larger, more expansive markets as Mr. Moore suggests would require exactly the kind of engineering he warns against, as well as large energy inputs. Markets must also consider potentially complex and uncertain effects on other users, rural communities, ecosystems, and the environment. Trading water without accounting for linkages between surface water bodies and groundwater can destroy instream habitat for endangered species or compromise downstream water rights.

While water markets and market-like transactions can work very well, they must be sensitive to local conditions and be supported by strong local governance that is concerned about sustaining local economies.